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There’s No Such Thing as a Free Lunch, but Half Off Isn’t Bad

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By Michael Rainey

September 28, 2018

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Taking clients out for a meal has long been a foundational perk in the business world, and the Internal Revenue Service blessed the practice with a 50 percent deduction of qualified expenses. But the GOP tax bill that took effect this year eliminated the deduction for client entertainment – think box seats at a Yankees game – and there was some uncertainty about whether the new rule applied to business meals as well.

According to The Wall Street Journal Friday (paywall), the IRS is expected to issue new guidance soon that clarifies the distinction between entertainment and meals, preserving the 50 percent deduction for the latter. Here’s the Journal’s sketch of how the rule will be applied: “[I]f a business owner takes a client to a ballgame, the cost of the tickets isn’t deductible because the expense is for entertainment. If the owner buys hot dogs and drinks for himself and the client at the game, this expense could still be 50% deductible.”

The Journal says that the old limits on the use of the deduction will still apply. Client meals cannot be “lavish or extravagant” and business issues must be discussed at some point before, during or after the event. And receipts will have to break out costs in a clear – and believable – way. That means that while a $100 client lunch will probably pass the IRS smell test, a $10 round of golf followed by a $400 meal in the clubhouse probably won’t.